A summary of selected tax measures announced or confirmed at the 2022 Spring Statement
When the 2022 Spring Statement was scheduled earlier this year, it was not expected to be a major fiscal event. 2021 had seen two separate Budgets which each included a range of tax measures, and no further major announcements relating to tax were expected until the 2022 Autumn Budget.
But record inflation, resulting in a cost-of-living crisis, came in between, which has forced the Chancellor into some tax give-aways and the publication of a Tax Plan (which is available here). While some of those measures had been expected, the announcement of a proposed reduction of the basic rate of income tax from 20% to 19% (from April 2024) was a surprise.
Set against the reliefs and reductions announced today is the fact that the tax raising measures previously announced will go ahead as planned, most notably the increases in National Insurance this coming April, the corporation tax increase in April 2023 and the freezing of allowances (see our 2021 Autumn Budget Bulletin for further detail). The Chancellor made it clear that the UK economy must be protected, especially given the current uncertainties in the global economy and, in particular, in energy markets.
The Tax Plan also includes a renewed emphasis on tax reform, including in particular in the areas of research and development and capital allowances. The Government intends to consult on those matters over the summer and confirm any resulting proposals at the 2022 Autumn Budget.
Set out below is a summary of tax measures announced or confirmed today that we believe will matter most to our clients.
This summary was compiled by Annette Beresford, Victoria Clement, Samantha Cheong, Jamie Crocker and Jasmine Akouiradjemou, with assistance from Kieron Glover.
Business tax measures
VAT - new zero rate for "energy saving materials" (ESMs)
The rate of VAT applicable to ESMs will be reduced from 5% to 0% for a five-year period, with effect from 1 April 2022. ESMs include home insulation materials, solar panels and heat pumps. Wind and water turbines are also within the scope of the relief.
Since the introduction of this relief diverts from EU VAT rules, the Northern Ireland Protocol will prevent it from applying in Northern Ireland for the time being. The Northern Ireland Executive will instead receive a Barnett share of the value of the relief (based on the Barnett mechanism for adjusting the amounts of public expenditure allocated to Northern Ireland) until its UK-wide introduction can be negotiated with the EU.
With regard to VAT, it is worth noting that today's announcements did not include an anticipated extension of the reduced 12.5% rate of VAT currently applicable to services provided by the hospitality sector. This means that, from 1 April 2022, the hospitality industry will once more be subject to the 20% standard rate of VAT.
Business investment - capital allowances
The Chancellor referred to the following temporary capital allowances measures that were previously announced at the 2021 Spring Budget and confirmed or extended at the 2021 Autumn Budget (see our 2021 Autumn Budget Bulletin):
- the "super deduction" applicable to qualifying expenditure incurred between 1 April 2021 and 31 March 2023; and
- the temporary £1 million limit (increased from £200,000) for the annual investment allowance (AIA), applicable until 31 March 2023.
It is not currently proposed to extend those measures beyond March 2023. Instead, the Government intends to consult with businesses on reforming and cutting taxes on business investment and to announce the outcome of such consultations and resulting measures, including any changes to the capital allowance regime, at the 2022 Autumn Budget.
R&D relief reform
Today's Spring Statement included an announcement that R&D reliefs will be reformed, with changes being announced at the 2022 Autumn Budget and coming into force in April 2023. The intention is for the Government's R&D spending to be increased to £20 billion a year by 2024, representing an increase of £5 billion. The stated aim of these reforms is to encourage and support innovation in the UK.
The Government had previously announced that some cloud computing costs will qualify for R&D tax relief. It has now been confirmed that from April 2023, all cloud computing costs associated with R&D, including storage, will qualify for relief. Additionally, in recognition of the growing importance of mathematics in supporting R&D, the scope of the relief will be expanded to include pure mathematics as a qualifying cost.
The Government will also legislate to allow overseas R&D expenditure to qualify for relief. This will apply where there are material factors that are not present in the UK, such as geography or environment, covering expenditures such as deep ocean research. Taxpayers may also claim relief for overseas R&D where this is necessitated by regulatory or legal requirements, such as the carrying out of clinical trials.
Apprenticeship levy to be reformed
The Apprenticeship Levy is a tax paid by employers whose annual payroll exceeds £3 million. The levy is charged at 0.5% of the employer's total payroll and is collected through PAYE.
The purpose of the levy is to provide funding for apprenticeships across the private sector, including by using some of the funds raised through the levy to support non-levy paying employers in providing apprenticeship training.
In recognising stakeholder frustration in the ways that levy funds are spent, the Government intends to look into more flexible apprenticeship training models. The overall aim is to encourage greater private sector investment in employee training, and there will be a review to consider whether the Apprenticeship Levy is doing enough to support investment in training.
Employment Allowance up from April 2022 (£4000 to £5000)
The Employment Allowance exists to support businesses and charities with Class 1 National Insurance (NI) liabilities that are less than £100,000 in a given tax year. It's aim is to reduce the cost of employment.
The Chancellor has announced that the Employment Allowance will increase from £4,000 to £5,000, from April 2022. This means that eligible employers will be able to reduce their annual NI liability by an additional £1,000 per employer, in effect an indirect tax cut.
Venture capital reliefs
Today's Spring Statement did not include any changes to venture capital reliefs. It should be noted, however, that the Employment Allowance referred to above counts as a 'de minimis State Aid' and its increase could therefore affect the amount of SEIS funding that a company is able to raise.
Enterprise Management Incentive (EMI) schemes and Company Share Option Plans (CSOPs)
At the 2020 Budget, the Government launched a review of the EMI scheme, to ensure it continues to provide the right support for high-growth companies to recruit and retain talent. The Government has now concluded that the current EMI scheme remains effective and appropriately targeted.
However, the scope of the review will be expanded to consider whether CSOPs (being the other discretionary tax-advantaged share scheme), should be reformed to support companies as they grow beyond the scope of EMI.
Business rates - green exemptions
The 2021 Autumn Budget included targeted business rates exemptions for eligible plant and machinery used in renewable energy generation and storage (including a new 100% relief for eligible heat networks), which were to take affect in April 2023. These measures have been brought forward by a year and are now scheduled to come into effect in April 2022. They are expected to save businesses more than £200 million over the next five years.
Other business rates reliefs announced at the 2021 Autumn Budget for 2022/23 remain in place unchanged. These include:
- freezing the multiplier for calculating and charging business rates at the 2020/21 rates; and
- a temporary 50% business rates relief for eligible retail, hospitality and leisure businesses, worth approximately £1.7 billion.
Further information on these measures is available in our 2021 Autumn Budget Bulletin.
Personal tax measures
National Insurance (NI) threshold raised to match income tax threshold
It was announced today that, effective from July 2022, the NI threshold (meaning the current Primary Threshold and Lower Profits Limit for Class 1 (employee's) NI contributions) will increase from £9,880 to £12,570, to match the current income tax personal allowance threshold.
Self-employed people with lower earnings will also benefit, as they will no longer be required to pay any Class 2 NI contributions on profits below the Small Profits Threshold (£6,725 in the 2022-23 tax year), but will continue to build up NI credits. This change will apply from April 2022.
This is a welcome measure for those hit hardest by the cost-of-living crisis, where they will now be able to earn up to £12,570 annually before having to pay any NI or income tax. It is estimated that individuals will save an annual £330, as part of this £6 billion tax cut.
However, this increase of the NI threshold comes amidst the looming increase in NI contributions, which has not been scrapped and will become effective from April 2022 onwards. As announced in the 2021 Autumn Budget, NI contributions are set to rise by 1.25% in both Class 1 (employer and employee) and Class 4 (self-employed), with such increases being replaced by the Health and Social Care Levy the year after. The increase to the NI threshold is only a concession to protect lower earners from the effect of the 1.25% increase in NI.
Income tax basic rate cut - 20% to 19% from April 2024
The Chancellor has announced his intention to cut the basic rate of income tax from 20%to 19% before the end of this Parliament, from April 2024 onwards. This would be the first cut to the basic rate of income tax in 16 years, and would see the average taxpayer £174 a year better off. Legislating for this measure will be contingent on inflation being back under control etc., and it cannot therefore be regarded as a certainty that this will happen.
The Chancellor also intends to carry out a general review of tax reliefs and allowances before the reduction of the basic rate of income tax is implemented.
Fuel duty cut
As of 6 pm on 23 March 2022, fuel duty has been cut by 5p per litre on a UK-wide basis. This measure is intended to help combat the increase in cost of living and is set to remain in place for 12 months.
Alcohol duties remain frozen
There have been no further changes to alcohol duties, which remain frozen as confirmed at the 2021 Autumn Budget (see our 2021 Autumn Budget Bulletin).
Originally Published 23 March 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.